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CPA REVIEW SCHOOL OF THE PHILIPPINES Manila PRACTICAL ACCOUNTING PROBLEMS I SUGGESTED SOLUTIONS BOOK VALUE PER SHARE AND QUASI-REORGANIZATION 1. Liquidation value (30,000 shares x 115) Preferred dividends Preference shareholders equity Divide by Book value per preference share 3,450,000 300,000 3,750,000 30,000 125 A Prac. 1 Handouts

Only current year dividends should be included in preferred stockholders equity because the preferred stock is assumed to be noncumulative since the problem is silent regarding the characteristics of the preferred stock. 2. Par value of preference shares Liquidation premium Preferred dividends (300,000 x 5 years) Preferred shareholders equity Total shareholders equity Less: Preferred shareholders equity Ordinary shareholders equity Divide by Book value per ordinary share 3,000,000 300,000 1,500,000 4,800,000 12,000,000 4,800,000 7,200,000 50,000 144 A

Preferred shareholders equity shall include all dividends in arrears because the preferred stock is cumulative. Remember that when the problem states that the dividends are in arrears as of the balance sheet date that will include the current year preferred dividend. 3. Total shareholders equity Divide by (72 4 + 12) Book value per ordinary shares Ordinary share capital Subscribed share capital Retained earnings Total Less: Treasury stock Total shareholders equity for book value per share computation 9,800,000 80,000 122.50 A 7,200,000 1,200,000 2,000,000 10,400,000 600,000 9,800,000

For purposes of book value per share computation, the subscription receivable should not be deducted from the subscribed share capital account. This represents the amount owed by the subscribers. If this is deducted, it would effectively be charged to the shareholders that have fully paid their shares. 4. Total dividends (30,000 x 100 x 10% x 2) Less: Dividends paid Dividends in arrears to be disclosed 5. 12% cash dividend* 10% cash dividend** 12% cash dividend*** Balance for participation PS part. of the balance OS part. of the balance Total dividends Dividends 9,500,000 (6,000,000) ( 500,000) (1,200,000) 1,800,000 ( 900,000) ( 900,000) 12% PS 6,000,000 500,000 1,200,000 900,000 . . 7,150,000 10% PS 600,000 200,000 400,000 D OS

. 500,000

900,000 2,100,000

*10,000,000 x 12% x 5 years = 6,000,000 ***10,000,000 x 12% =1,200,000

**5,000,000 x 10% = 500,000

Since the preferred stock will share in the balance because of its participating right, it is only but fair that common stock receive a share equal to the rate of the participating preferred stock before computing for the balance for participation. Take note that this share is only for 1 year and does not accumulate. How the balance for participation was divided: Preferred stock Common stock Totals Par value 10,000,000 10,000,000 20,000,000 Fraction from PV 10/20 10/20 Dividends 900,000 900,000 1,800,000

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7. Entries before deficit is eliminated: Retained earnings Inventory Retained earnings Plant assets Retained earnings Accounts payable Cash Share premium Share capital Share premium Entry to eliminate deficit Share premium Retained earnings Share capital (P50 par value, 50,000 shares) Share premium Retained earnings Total shareholders equity 3,800,000 3,800,000 2,500,000 700,000 0 3,200,000 2,500,000 2,500,000 500,000 500,000 1,000,000 1,000,000 300,000 300,000 1,500,000 1,500,000

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